We examine whether owners\u27 decisions to delegate corporate responsibilities to overconfident managers improve welfare. We develop a dynamic model with product differentiation, where firms compete in cost-reducing research and development (R&D) and output. Before firms compete, each owner makes a strategic decision whether to hire an overconfident manager. The results reveal that when R&D technology is less productive, owners hire overconfident managers who overinvest in cost-reducing R&D. These strategic decisions improve welfare when spillovers are small and R&D productivity is low, or spillovers are large, or product differentiation is strong
